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[DRAFT] World Bank Charter

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Opiachus
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[DRAFT] World Bank Charter

Postby Opiachus » Mon Apr 12, 2021 4:52 am

This draft has been updated. The feedback has been really helpful and the incorporation of the remaining feedback not addressed by this update is still being considered. The old version is in the spoiler below the current draft. (edit: additional update done to add GAO audits of recipients)
Title: World Bank Charter
Category: Advancement of Industry
Area of Effect: Commercial Enterprise
Author: Opiachus

The World Assembly hereby:

OBSERVES the necessity of loans for the development of industry and improvement of the human condition in member states.

OBSERVES that the World Assembly General Fund is currently held in private banks where the profit from lending of said funds, which are mostly from public sources, goes towards private bank owners instead of the World Assembly or its members and donors.

OBSERVES the frequent political and economic crises caused when member states cannot repay loans which often become issues for the international financial system, for the health of democracy, and for regional political stability.

OBSERVES the lack of a central institution where member state institutions can settle transactions and exchange currencies, which forces a convoluted system whereby institutions must open correspondent accounts with every other institution they wish to deal with on an ad-hoc basis.

OBSERVES that the World Assembly is reliant on member donations as the primary source of its revenues and diversification of revenue sources is necessary for the funding of large projects and programs commonly mandated by World Assembly resolutions, lest the World Assembly impose onerously large donations on member states.

DENOUNCES the practice by some banks and nations of using loans to exert political influence over sovereign member states and the use of defaults on such loans as a case for war or the seizure of assets.

Therefore, the World Assembly hereby:

CHARTERS the World Bank as an agency of the World Assembly.

OPENS accounts at the World Bank for the World Assembly and for each member state's institutions.

ALLOWS the World Bank to conduct banking business for the purposes of (a) lending for the development of industry, (b) deposit and withdrawal of the World Assembly General Fund and member state institution funds, (c) emergency lending for distressed member state governments and central banks liable to cause an international financial crisis in case of default, and (d) providing a central location for member state institutions to settle financial transactions and convert between currencies.

REQUIRES that the World Bank conduct banking business in a manner which is profitable and that said profits are kept as retained earnings by the World Bank for the furtherance of its banking business and potential payout to the World Assembly General Fund.

PROHIBITS the World Bank from creating or issuing its own currency.

ASSIGNS oversight of the World Bank's activities, compliance of the World Bank's banking business with this resolution, and the receipt of annual and quarterly reports from the World Bank to the World Assembly General Accounting Office (GAO).

ALLOWS a portion of the World Bank's retained earnings to be paid out as a dividend to the World Assembly General Fund, with the proportion set by the GAO to ensure sufficient reserves for the banking business even in times of crisis.

REQUIRES organizations receiving loans from the World Bank to submit audited financial statements to the GAO and subject themselves to any further reviews requested by the GAO.

REQUIRES member state central banks to use the World Bank to settle financial transactions and convert between currencies under purpose (d).

STRONGLY ENCOURAGES member state institutions to use the World Bank for the purposes listed in this resolution if not falling under the previous requirement clause.

Title: World Bank Charter
Category: Advancement of Industry
Area of Effect: Commercial Enterprise
Author: Opiachus

  1. Background
    The World Assembly makes the following observations about sovereign debt in developing member states:
    1. The sovereign debt markets of developing member states lack liquidity and stability and this is a persistent source of contagious international financial crises which cause recessions in very many member states.
    2. There are frequent sovereign debt defaults of many developing member states which are subjected to
      1. High interest rates
      2. Restrictive covenants
      3. Predatory lending practices
      by private lenders who are often multinational banks that seek to weaponise sovereign debt defaults to gain corporate influence over developing member states.
    3. Sovereign debt, by allowing governments to finance the expenses of today using the tax receipts of tomorrow, is critical for the development of large-scale long-payoff period capital projects in developing member states, including basic infrastructure, essential welfare services mandated by other World Assembly resolutions, and state-directed advancement of industry for future economic growth.
    The World Assembly makes the following observations about monetary policy in member states:
    1. Governments set monetary policy through central banks by maintaining reserves of foreign currency.
    2. International transactions between central banks require correspondent accounts at both central banks for settlement and currency conversion at some mutually-agreeable rate.
    3. Many currency crises and economic problems have occurred when central banks run out of reserves of foreign currency and are unable to acquire more from the other central banks they have a correspondent relationship with.
    The World Assembly makes the following observations about its own finances:
    1. The World Assembly's funds, which are mostly the public funds of member states, are held in accounts at multinational private banks.
    2. Most of the interest from the lending of those public funds goes to the private banks, and by extension their wealthy shareholders.
    3. All interest from the lending of funds in the World Assembly's care should be retained by the World Assembly, and this can be accomplished through accounts at a World Bank chartered as an agency of the World Assembly.
  2. Purpose
    The World Bank has the quadruple mandate of:
    1. Being a lender-of-last-resort for member states facing a sovereign debt crisis to prevent financial market contagion and exploitation by private bank lenders.
    2. Providing loans to developing member states for the development of infrastructure, financing of services required of the government by World Assembly resolutions, and advancement of industry to promote economic growth and a higher standard of living.
    3. Establishing a correspondent banking relationship with all member state central banks to provide transaction settlement services between central banks for all member state currencies so that governments can deal in foreign currency for monetary policy purposes without fear of currency crises.
    4. Holding the funds of the World Assembly and retain the interest from the lending of those funds under mandates (a) and (b) for itself, and upon withdrawals, for the World Assembly and eventually the member states.
  3. Actions
    The World Assembly hereby:
    1. Charters the World Bank as an agency of the World Assembly.
    2. Transfers all World Assembly funds to deposit accounts at the World Bank.
    3. Opens a correspondent account at the World Bank for every member state central bank and a correspondent account at every member state central bank for the World Bank.
    4. Grants the World Bank the power to open deposit accounts for member state governments, the power to open correspondent accounts both at and for member state central banks, the power to enter into lending agreements and investments with account holders, the power to act as a clearing house for transaction settlement between central banks, and the power to transact in any member state currency.
    5. Requires the World Bank to publish quarterly and annual reports of its activities and audited financial statements for public view.
    6. Limits the World Bank's fractional reserve ratio and other banking variables according to the judgement of the World Bank Oversight Office (WBOO) which will receive the reports of the World Bank and ensure it is a sustainably profitable enterprise in the long-term.
    7. Restricts investments by the World Bank to only sovereign debt, public debt, member state currencies, and stakes in projects deemed by the WBOO to fall under mandate (b).
    8. Prohibits ownership shares of the World Bank from being issued or transferred to any entity except the World Assembly and its organs.
    9. Expressly prohibits the creation or issuance of any currency by the World Bank.
    10. Reserves the right as sole owner of the World Bank to pay itself, and only itself, dividends from the World Bank's retained interest, subject to the review of the WBOO to ensure sufficient capitalisation of the World Bank, for use in the World Assembly's operations and initiatives as specified in other World Assembly resolutions.
    11. Strongly encourages developed member state governments to open deposit accounts at the World Bank for profitable investment in developing member states with high demand for capital.
    12. Strongly encourages developing member state governments to borrow exclusively from the World Bank at fair lending terms, to refinance existing debt with exploitative private bank lenders under better terms from the World Bank, and to embark on new projects under mandate (b) with the use of World Bank funds.
    13. Directs member state central banks to exclusively use their World Bank correspondent accounts for settlement purposes with other member state central banks for financial system efficiency, consistency, and stability.
    14. Closes all World Assembly fund accounts and banking relationships with private banks.
Last edited by Opiachus on Sun Apr 18, 2021 1:19 am, edited 3 times in total.
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Bananaistan
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Postby Bananaistan » Mon Apr 12, 2021 5:12 am

OOC: This is a solid idea. I'm sure others such as Imperium Anglorum will advise on the technical aspects.

IC: "This generally appears to be a good use of the GA's funds but in order to completely avoid any possibility corrupt squandering of WA funds or losses falling back on the our taxpayers, we would like to see a role for the GAO in supervising and auditing any entity, government or private, which receives loans from the bank under 2a and 2b. The bank itself probably doesn't require any special oversight in respect of 2c."
Last edited by Bananaistan on Mon Apr 12, 2021 5:12 am, edited 1 time in total.
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Boston Castle
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Postby Boston Castle » Mon Apr 12, 2021 8:57 am

Bananaistan wrote:OOC: This is a solid idea. I'm sure others such as Imperium Anglorum will advise on the technical aspects.

IC: "This generally appears to be a good use of the GA's funds but in order to completely avoid any possibility corrupt squandering of WA funds or losses falling back on the our taxpayers, we would like to see a role for the GAO in supervising and auditing any entity, government or private, which receives loans from the bank under 2a and 2b. The bank itself probably doesn't require any special oversight in respect of 2c."

OOC: Second this. Not my area of technical expertise, but this is a very solid start. Would note that you are probably over the character count quite significantly right now: 5,777 vs. the 5,000 limit if I'm not mistaken. However, just on a very quick glance: I am genuinely not sure what could be cut from this-though some of this may come from the technical expertise people like IA can provide.
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Imperium Anglorum
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Postby Imperium Anglorum » Mon Apr 12, 2021 11:12 am

Opiachus wrote:
Title: World Bank Charter
Category: Advancement of Industry
Area of Effect: Commercial Enterprise
Author: Opiachus

  1. Background
    The World Assembly makes the following observations about sovereign debt in developing member states:
    1. The sovereign debt markets of developing member states lack liquidity and stability and this is a persistent source of contagious international financial crises which cause recessions in very many member states.
    2. There are frequent sovereign debt defaults of many developing member states which are subjected to
      1. High interest rates
      2. Restrictive covenants
      3. Predatory lending practices
      by private lenders who are often multinational banks that seek to weaponise sovereign debt defaults to gain corporate influence over developing member states.
    3. Sovereign debt, by allowing governments to finance the expenses of today using the tax receipts of tomorrow, is critical for the development of large-scale long-payoff period capital projects in developing member states, including basic infrastructure, essential welfare services mandated by other World Assembly resolutions, and state-directed advancement of industry for future economic growth.
    The World Assembly makes the following observations about monetary policy in member states:
    1. Governments set monetary policy through central banks by maintaining reserves of foreign currency.
    2. International transactions between central banks require correspondent accounts at both central banks for settlement and currency conversion at some mutually-agreeable rate.
    3. Many currency crises and economic problems have occurred when central banks run out of reserves of foreign currency and are unable to acquire more from the other central banks they have a correspondent relationship with.
    The World Assembly makes the following observations about its own finances:
    1. The World Assembly's funds, which are mostly the public funds of member states, are held in accounts at multinational private banks.
    2. Most of the interest from the lending of those public funds goes to the private banks, and by extension their wealthy shareholders.
    3. All interest from the lending of funds in the World Assembly's care should be retained by the World Assembly, and this can be accomplished through accounts at a World Bank chartered as an agency of the World Assembly.
  2. Purpose
    The World Bank has the quadruple mandate of:
    1. Being a lender-of-last-resort for member states facing a sovereign debt crisis to prevent financial market contagion and exploitation by private bank lenders.
    2. Providing loans to developing member states for the development of infrastructure, financing of services required of the government by World Assembly resolutions, and advancement of industry to promote economic growth and a higher standard of living.
    3. Establishing a correspondent banking relationship with all member state central banks to provide transaction settlement services between central banks for all member state currencies so that governments can deal in foreign currency for monetary policy purposes without fear of currency crises.
    4. Holding the funds of the World Assembly and retain the interest from the lending of those funds under mandates (a) and (b) for itself, and upon withdrawals, for the World Assembly and eventually the member states.
  3. Actions
    The World Assembly hereby:
    1. Charters the World Bank as an agency of the World Assembly.
    2. Transfers all World Assembly funds to deposit accounts at the World Bank.
    3. Opens a correspondent account at the World Bank for every member state central bank and a correspondent account at every member state central bank for the World Bank.
    4. Grants the World Bank the power to open deposit accounts for member state governments, the power to open correspondent accounts both at and for member state central banks, the power to enter into lending agreements and investments with account holders, the power to act as a clearing house for transaction settlement between central banks, and the power to transact in any member state currency.
    5. Requires the World Bank to publish quarterly and annual reports of its activities and audited financial statements for public view.
    6. Limits the World Bank's fractional reserve ratio and other banking variables according to the judgement of the World Bank Oversight Office (WBOO) which will receive the reports of the World Bank and ensure it is a sustainably profitable enterprise in the long-term.
    7. Restricts investments by the World Bank to only sovereign debt, public debt, member state currencies, and stakes in projects deemed by the WBOO to fall under mandate (b).
    8. Prohibits ownership shares of the World Bank from being issued or transferred to any entity except the World Assembly and its organs.
    9. Expressly prohibits the creation or issuance of any currency by the World Bank.
    10. Reserves the right as sole owner of the World Bank to pay itself, and only itself, dividends from the World Bank's retained interest, subject to the review of the WBOO to ensure sufficient capitalisation of the World Bank, for use in the World Assembly's operations and initiatives as specified in other World Assembly resolutions.
    11. Strongly encourages developed member state governments to open deposit accounts at the World Bank for profitable investment in developing member states with high demand for capital.
    12. Strongly encourages developing member state governments to borrow exclusively from the World Bank at fair lending terms, to refinance existing debt with exploitative private bank lenders under better terms from the World Bank, and to embark on new projects under mandate (b) with the use of World Bank funds.
    13. Directs member state central banks to exclusively use their World Bank correspondent accounts for settlement purposes with other member state central banks for financial system efficiency, consistency, and stability.
    14. Closes all World Assembly fund accounts and banking relationships with private banks.

This is an interesting proposal. A few remarks.

I'm not sure whether this is intentional or not, but the current proposal conflates the three major international banks. The Int'l Monetary Fund, the World Bank, and the Bank for Int'l Settlements all do different things. This proposed organisation would put a large number of functions, which are separated in the real world, together. A lot of the functions of BIS are implied to be sufficiently profitable to fund policies that might be pursued by the IMF and (real world) World Bank. I don't really believe this would add up: the World Bank and the IMF are lenders of last resort because the people they want to lend to are too risky.

Also on risky sovereign debts. The reason why governments accept those sorts of restrictive covenants and high interest rates is because they are risky. When some risky nation defaults on its debt every few years people will not be willing to lend to them without either some guarantees, some remuneration, or in a foreign currency. If sovereign lending were merely about giving money to people, it would very quickly dry up as nobody would do it. I wouldn't give my money to Zaire or Argentina without some real guarantees that I would get it back. Though in-character, lenders in Londinium would be eminently willing to lend to them, and then on possibly default, ask for a military expedition to coerce repayment...

The quadruple mandate below seems a bit iffy.

  1. Being a lender-of-last-resort for member states facing a sovereign debt crisis to prevent financial market contagion and exploitation by private bank lenders.
  2. Providing loans to developing member states for the development of infrastructure, financing of services required of the government by World Assembly resolutions, and advancement of industry to promote economic growth and a higher standard of living.
  3. Establishing a correspondent banking relationship with all member state central banks to provide transaction settlement services between central banks for all member state currencies so that governments can deal in foreign currency for monetary policy purposes without fear of currency crises.
  4. Holding the funds of the World Assembly and retain the interest from the lending of those funds under mandates (a) and (b) for itself, and upon withdrawals, for the World Assembly and eventually the member states.

The first portion I think needs to come with conditions attached. Without the ability for an kind of international bailout to force adjustments in spending patterns to a more sustainable level, there will just be another international bailout. This is just a no Ponzi condition. We should not expect our WA Bank to have infinite resources and we should expect member nations to ask for more than the bank can give. I'm also broadly unconcerned about 'exploitation by private bank lenders'. Governments are very sophisticated market actors.

Development aid's efficacy is hotly debated. The empirical evidence is unclear, but my view is that aid really only works in the presence of effective institutions that prevent that aid from being channelled into unproductive or corrupt purposes. See eg Camelia Minoiu and Sanjay G Reddy, 'Development aid and economic growth: A positive long-run relation' (2010) 50 Q Rev Econ Fin 27. Compare Craig Burnside and David Dollar, 'Aid, Policies, and Growth' (2000) 90 Am Econ Rev 847 with William Easterly et al, 'Aid, Policies, and Growth: Comment' (2004) 94 Am Econ Rev 774 (arguing that Burnside and Dollar's conclusion is not robust to new data). Aid might also have minimal effects on investment, showing up instead in the consumption account, which would explain it's lack-lustre effects partially. Jonathan Temple and Nicolas Van de Sijpe, 'Foreign aid and domestic absorption' (2017) 108 J Int'l Econ 431. Some research at a certain aid cutoff threshold – which is inherently biased towards nations which can reach that threshold – says aid is effective, Sebastian Galiani et al, 'The effect of aid on growth: evidence from a quasi-experiment' (2017) 22 J Econ Growth 1, but I'm not entirely convinced their conclusion is applicable to all nations.

Taking Temple and van de Sijpe seriously, however, an increase in aid flows – where the aid is not a grant – would imply a temporary increase in consumption, little impact to investment, and therefore, a higher debt burden that would in the long run still need to be serviced with what is effectively the same amount of resources. This is especially the case if we take Mankiw et al, 'A Contribution to the Empirics of Economic Growth' (1992) 107 Q J Econ 407. [hereinafter MRW] seriously: a consumption increase would have no effect on long term output except by an investment channel which is unobserved.

Currency crises also are not generally caused by an inability to trade one currency for another. It is generally caused by the inability to trade one currency for another at the government-sought terms. The 1992 episode with the British pound had nothing to do with an inability to trade sterling, but rather, an inability for the government to support its exchange rate, forcing the UK government to let sterling float. Fixed exchange rates are, in my view, a generally bad idea unless a nation has enough reserves to support it under most any circumstances (eg the HK Monetary Authority is believed to have enough dollars to buy back every single HKD at peg). Given, however, that other central banks are not willing to shove good money after bad, they won't be willing to lend reserves to support a possibly doomed peg. So this wouldn't be a solvent policy.

I'll need to think on the proposal for longer re more feedback, but closing all WA accounts with private banks seems overly hasty. Some central banks may be privately run organisations (eg the Bank of England until 1946). The World Assembly similarly may need to escrow or disburse funds in areas where some World Assembly banking network is not as robust. This prohibition would make it difficult to achieve WA objectives.
Last edited by Imperium Anglorum on Mon Apr 12, 2021 11:30 am, edited 2 times in total.

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Postby Outer Sparta » Mon Apr 12, 2021 11:19 am

This topic is way over my head, but how feasible would a WA World Bank be in the larger scope of things? It's definitely an interesting topic and has a lot of potential that's for sure.
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Postby Tinhampton » Mon Apr 12, 2021 1:01 pm

I would like to be the first nth to welcome Universal Time Boi back to the World Assembly.

Your current draft is about 6,000 characters; submitted proposals can be no longer than 5,000. "retain the interest" in Mandate d should probably read "retaining the interest." I have no idea what Action n is supposed to do but am inclined to agree with IA. Other comments from me may or may not come later.
Last edited by Tinhampton on Mon Apr 12, 2021 1:41 pm, edited 1 time in total.
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Boston Castle
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Postby Boston Castle » Mon Apr 12, 2021 4:22 pm

Imperium Anglorum wrote:The Int'l Monetary Fund, the World Bank, and the Bank for Int'l Settlements all do different things. This proposed organisation would put a large number of functions, which are separated in the real world, together.

This is actually a thought that just occurred to me, but might it not make sense then for OP to split these functions up given this? Certainly all would be worthwhile, but given the issue right now with brevity, it might make sense to split this up a bit.
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Opiachus
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Postby Opiachus » Sun Apr 18, 2021 12:49 am

Draft is now updated taking into consideration the feedback received and the length requirement. The feedback has been good and some feedback still hasn't been incorporated in the draft yet or still hasn't been decided on whether it should be incorporated into the draft or not.

OOC Re: The actual real-life World Bank+Bank of International Settlements+International Monetary Fund: Yes, in fact this proposal was drafted with the idea of combining all three of those institutions under a NS "World Bank." Partly because I didn't want to submit three proposals all on related international institutions in case the number of such institutions ever became a source of complaint (i.e. the "We already have X and Y" effect). I'm not sure yet if I will break it up or if I will submit this as a package deal.
Last edited by Opiachus on Sun Apr 18, 2021 12:50 am, edited 1 time in total.
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